Questor share tip: BPI wraps up a profit

BPI shares near record highs after it wraps up another profit, one to watch
says Questor

By John Ficenec, Questor editor

6:00AM BST 28 Aug 2013

BPI 580p+19½ Questor says HOLD

BRITISH Polythene Industries (BPI) reported a solid set of interim results and muted confidence from the management team mean things are looking up for the second half.

John Langlands, chief executive, said that demand in the second half was now looking less uncertain. That is as close to optimism as you get in the plastic packaging industry as there is low visibility on its earnings and profits are often at the mercy of wild swings in polymer prices, which are closely linked to the oil price.

First-half trading was encouraging, with revenues up 3pc to £282m. However, the more impressive performance was on pre-tax profits, up 16pc to £14.1m.

Despite problems in the eurozone debt markets, demand was up strongly for the plastic wrapping that BPI supplies into the European market. Mainland Europe reported a 2,900 tonne increase in wrapping sold to 43,600 tonnes and at higher prices than the same period last year, resulting in operating profits in the unit increasing to £9.6m.

BPI benefited from putting through price increases on its products between January and March of this year. The company was further buoyed by the introduction of new wrapping products into the agriculture industry. BPI has developed a thinner version of the plastic wrapping used to seal silage that also retains its strength. This lowers cost for farmers and decreases the amount of silage that is wasted because of damaged rolls.

There is one area of concern for Mr Langlands and that is the rising cost of energy in the UK. “I have to decide whether I invest in the UK or overseas based on the cost of energy,” he said. Mr Langlands said that this was a big factor when he made the recent decision on a €6m (£5.1bn) plant investment in Belgium and a $4m project to expand operations in Canada.

BPI shares have had an excellent run, adding 44pc so far this year. However with prices for plastic wrapping products holding at these levels and resilient demand across Europe for the new range of products the rating is not looking stretched.

The shares trade on 10.2 times 2013 earnings, falling to 9.5 times next year, a discount to peers in the packaging sector. The interim dividend is up 7pc to 4.5p, and with a full-year dividend yielding 2.5pc – something which brokers expect to grow by double digits over the next two years – BPI is one to watch. However with the shares near record highs, it’s a hold for now.